TIME SERIES ANALYSIS ON CRUDE OIL PRODUCTION IN NIGERIA

ABSTRACT

Nigeria is one of the fast economy growing countries in crude oil production and since Nigeria economy depends on crude oil which is used for production of petroleum like petrol,diesel, natural gas, kerosene, bitumen e.t.c so time series was used to forecast the futre production of crude oil in Nigeria using NNPC data from 2008- 2017, which is a ten years monthly data, the trend is estimated and the future production of crude oil in Nigeria. Statistical soft ware used was S.P.S.S (statistical packages for social science) and E- views. The root test for stationarity was done, and it was discovered that the data are not stationary, other test like   the best fit for the model is ARIMA (0,1,1) it was  conclude that the number of barrels of crude oil that will be produced in the next 12 months is 69810000 barrels each month.

TABLE OF CONTENTS

Content                                                                                                            Page

Title page                                                                                                  i 

Declaration                                                                                                                            ii

Certification                                                                                                                            iii

Dedication                                                                                                                              iv

Acknowledgement                                                                                                                  v

Abstract                                                                                                                                  vi

Table of Content                                                                                                                     vii

CHAPTER ONE: INTRODUCTION

Background to the Study                                                                                                       1

Contribution of Crude oil Production to Nigeria Economy                                       3

History of some companies dealing with crude oil production                                              4

Statement of Problem                                                                                                 5

Significance of the study                                                                                                        5

Scope and limitation of the Study                                                                                          5

Aim and Objectives                                                                                                    5

Definition of Terms                                                                                                    6

CHAPTER TWO: LITERATURE REVIEW 

2.1 Review of Related Literature                                                                                           7

2.2 Nigeria History of the Petroleum Industries                                                                     13                                                                               

CHAPTER THREE: METHODOLOGY

3.1 Time Plot                                                                                                                           14

3.2 Study Design                                                                                                                    15

3.3 Time series Analysis                                                                                                          16

3.4 Population of the Study                                                                                                    16

3.5 Data Collection Procedure                                                                                                16

3.6 Procedure for Data Analysis                                                                                             16

3.6.1 The Mathematical Model                                                                                               17

3.6.2 Model Identification                                                                                                      18

3.6.2.1 Augmented Dickey-Fuller (Adf) Test                                                                                    18

3.6.2.2 Unit Root Test                                                                                                                        19

3.6.2.3 Correlogram                                                                                                                20

3.6.3 Model Estimation                                                                                                          22

3.6.4 Model Diagnostic Check                                                                                               23

Ljung-Box Test Statistics                                                                                           24

3.6.5 Forecasting                                                                                                                     24

3.6.5.1 Estimating  of Forecast Accuracy                                                                               25

3.6.5.2 Root Mean Square Error (R.M.S.E) and Mean Absolute Error (M.E.A)                   25

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS        

4.1 Data Presentation and Analysis                                                            27

4.2 Data Analysis                                                                                          27

4.3 Interpretation of Result                                                                       33

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary                                                                                           34

5.2 Conclusion                                                                                        34

5.3 Recommendations                                                                             35

References                                                                                              36

Appendix                                 

                                                                37

CHAPTER ONE

INTRODUCTION

1.1   Background #of #the #study

Crude #oil #is #a #vital #commodity #in #the #world #market. #Despite #the #crusade #for #green #energy #and #other #sources #of #power. #Crude #oil #is #still #an #expensive #commodity #in #the #international #market. #Crude #oil, #which #is #the #most #dominant #source #of #energy #in #Nigeria, #was #discovered #in #1908, #at #Araromi #in #Ondo #State. #The #United #States #remains #Nigeria’s #largest #customer #for #crude #oil, #accounting #for #about #40% #of #the #country’s #total #crude #oil #exports.#(Nwogu, #2010). #With #the #discovery #of #large #deposits #in #Oloibiri #in #1958, #Shell #Petroleum #Development #Company #of #Nigeria #continued #further #exploration #and #export. #As #a #result #of #the #tremendous #revenue #realized #from #crude #oil, #other #exploration #companies #were #attracted #to #the #industry #(Udosen #et #al, #2009). #Nigeria #was #able #to #reap #instant #riches #from #its #oil #production#(Odularu, #2008). #Also #NNPC #report #had #it #that #Nigeria #petroleum #industry #is #the #main #generator #of #Gross #domestic #product #(GPD) #with #statistics #that #oil #revenue #has #totaled #$340 #billion #in #exports #since #the #1970s. #In #the #1970s, #the #production #of #crude #oil #was #intensified #up #to #the #tune #of #2.4million #barrels #per #day #(Udosen #et #al., #2009). #This #was #attributed #to #the #crisis #in #the #Middle #East #which #paved #way #for #the #increase #in #demand #of #oil #from #Nigeria, #but #by #early #80s, #there #was #slight #reduction #in #the #amount #of #crude #oil #produced. #This #was #orchestrated #by #excess #production #by #various #OPEC #member #countries #resulting #to #drop #in #the #price #of #crude #oil. #However, #the #production #picked #up #again #from #90s #and #by #2001, #the #production #was #averaging #2.2 #million #barrels #of #oil #per #day#(Odularu, #2008). #Owing #to #the #huge #revenue #generated #from #crude #oil, #other #areas #such #as #agriculture #and #mining #of #solid #minerals #were #neglected. #This #made #the #Nigerian #economy #to #depend #wholly #on #oil. #It #is #reported #that #oil #and #gas #exports #accounted #for #more #than #98% #of #export #earnings #and #about #83% #of #the #total #revenue #that #accrued #to #the #federal #government #in #2000. #In #Nigeria, #the #government #relies #on #the #income #generated #from #crude #oil #for #day #to #day #running#of #governmental #functions, #provision #of #infrastructure #and #other #social #amenities #for #the #citizenry #but #the #income #generated #depends #on #the #quantity #of #crude #oil #produced #as #well #as #the #price #per #barrel. #Thus, #it #is #necessary #to #provide #a #time #series #model #that #can #be #used #to #forecast #quantity #of #crude #oil #produced #for #the #purpose #of #making #reliable #budget #for #the #sustenance #of #the #economy. #

 #In #the #last #decades #of #the #20^{th #}century, #there #was #a #counter #– #intuitive #relationship #between #natural #resources #abundance #and #economic #development #(Aunty, #2001). #Developing #countries #with #abundant #natural #resources #underperformed #compare #with #those #that #are #deficient #in #natural #resources #(aunty; #2001). #Specifically, #the #per #capital #income #of #the #resources #poor #countries #increased #at #rates #two #or #three #times #faster #than #those #of #the #resources #abundant #countries. #The #growth #rate #equally #widened #significantly #since #1970s. #The #apparent #paradox #between #natural #resource #abundance #and #economic #growth #as #well #as #development #has #led #to #increasing #research #works #into #the #so #called #resource #curse #phenomenon. #Nigeria #is #a #natural #resource #abundant #country. #In #particular, #over #the #past #fifty #years, #the #country’s #oil #subsector #has #grown #phenomenally. #Both #production #and #exports #have #increased #enormously #since #commercial #production #in #1958, #for #example, #crude #oil #production #increased #from #395.7 #million #barrels #in #1970 #to #7760.1 #million #barrels #in #1998. #The #figure #increase #to #919.3 #million #barrels #in #2006. #The #figure #however #decreased #to #777.5 #million #barrels #in #2009. #The #huge #revenues #from #oil, #of #course, #presented #net #wealth #and #thus #provided #opportunity #for #increased #expenditure #and #investment; however #the #huge #revenues #complicated #macroeconomic #management #and #also #made #the #economy #highly #oil #dependent. #It #is #evident #that #export #of #petroleum #earns #valuable #foreign #exchange #in #Nigeria, #and #that #petroleum #and #money #are #so #important #to #modern #living #that #shortages #disrupt #essential #transactions. #That #links #between #petroleum #and #money #are #easily #obvious. #More #important, #a #proper #grasp #of #relationship #between #the #domestic #and #the #world #economy #is #essential #to #the #identification #of #these #relationships. #Even #compared #with #other #OPEC #countries #where #the #growth #rate #of #the #money #supply #has #been #generally #high, #the #recent #growth #rates #of #money #supply #in #Nigeria #is #alarming. #The #alarming #rate #of #money #supply #is #influenced #by #the #earnings #from #petroleum#(Osgie #1981). #The #oil #industry #is #very #important #to #the #Nigeria #economy. #It #provides #among #other #things #the #greatest #part #of #the #foreign #exchange #earnings #and #total #revenues #needed #for #socio-economic #and #political #development #of #Nigeria #economy. #The #bulk #of #Nigeria #crude #oil #is #sold #unrefined #and #well #refined, #the #products #range #from #petrol #to #heavy #liquids #for #road #tarring. #Government #has #been #the #custodian #of #petroleum #and #its #products #in #Nigeria. #The #persistent #instability #of #crude #oil #prices #in #the #global #market #has #adversely #affected #all #the #sectors #of #the #Nigeria #economy #negatively. #This #is #because #Nigeria #is #a #monoculture #economy.

Crude #oil #is #the #most #important #and #non-renewable #product #in #the #world. #Its #applications #are #abundant #in #daily #life, #from #making #plastic #bags #and #detergents #to #fuelling #ships #and #cars. #In #spite #of #the #fact #that #it #is #being #non-renewable, #but #the #world #still #consumes #crude #oil #every #single #second #as #it #is #very #challenging #to #find #a #substitute #source #that #can #comparable #its #unique #performances. #With #such #a #unique #nature #it #is #vital #for #us #to #develop #a #better #understanding #of #its #price #changing #aspects, #so #that #many #industries #which #consume #or #supply #oils #can #make #more #up-to-date #decisions. #Forecasting #of #crude #oil #prices #be #responsible #for #suitable #statistical #information #which #helps #the #policy #makers #and #government #agencies #as #well #as #the #investors #to #design #and #accomplish #their #assets #in #a #well-organized #fashion. #The #crude #oil #prices #are #very #sensitive #because #of #the #instability #nature #of #the #geo-political #and #global #socio-economic #events. #The #influence #in #the #crude #oil #prices #is #not #only #due #the #supply, #demand, #consumption #or #inventory #factors #but #it #is #also #depends #on #so #many #other #irregular #factors #which #are #unpredictable #and #stochastic #in #nature.

1.2 #Contribution #of #Crude #oil #Production #to #Nigeria #Economy

The #oil #industry #in #an #integral #of #the #Nigeria #economy. #It #provides #among #other #things, #the #greater #part #of #foreign #exchange #earnings #and #revenue #of #the #country's #development #employment #opportunities #have #increased #greatly #by #the #oil #industry. #It #should #be #noted #that #the #oil #industry #is #capital #land #equipment #intensive; #hence #it #employs #relatively #small #number #of #people. #In #regards #to #manpower #training, #the #petroleum #training #institute #(PTI) #for #training #and #promotion #of #skills #needed #in#various #aspect #of #petroleum #technology. #Scholarship #shave #been #awarded #to #many #qualified #Nigeria #for #the #relevant #course #industry. #Infrastructural #development #is #another #area #the #oil #industry #has #made #great #contribution.

1.3 #History #of #some #companies #dealing #with #crude #Oil #Production

(NNPC #business #information #journal #www.nnpcgroup.com)

1.4 #Statement #of #Problem

In #Nigeria, #the #government #relies #on #the #income #generated #from #crude #oil #for #day #to #day #running #of #government #functions #provision #of #infrastructure #and #other #social #amenities #for #the #citizen #but #the #income #generated #depend #on #the #quantity #of #crude #oil #produced #as #well #as #price #per #barrel. #Asides, #in #spite #of #the #huge #rents #from #oil, #the #economic #still #grapples #with #many #problems #including #high #and #rising #unemployment #rate, #declining #manufacturing #production, #high #and #rising #level #of #poverty #and #poor #infrastructural #development. #Therefore #this #study #lies #in #the #fact #that #the #quantity #of #crude #oil #produced #determines #the #quantity #to #be #either #refined #and #sold #or #exported #as #crude #which #is #the #main #stay #of #the #Nigeria #economy.

1.5 #Significance #of #the #study # # # # # # #

The #model #used #in #this #study #will #assist #in #ascertaining #the #quantity #of #crude #oil #produced #for #the #purpose #of #making #reliable #budget #for #the #sustenance #of #the #economy.

1.6 #Scope #and #limitation #of #the #Study

The #study #on #time #series #analysis #on #the #monthly #crude #oil #production #in #Nigeria #will #cover #a #period #of #monthly #crude #oil #production #from #the #year #2008 #to #2017 #(10 #years).

1.7 #Aim #and #Objectives

1.7.1 #Aim #

This #project #work #was #aimed #at #investigating #the #future #values #of #Nigeria #crude #oil #production #necessary #for #budgeting #and #planning.

1.7.2 #Objective #of #the #project #work

The #objectives #of #the #work #are #to: #

(i) #Determine #the #stationarity #of #crude #oil #production#(barrels)

(ii) #Forecasting #future #quantity #of #crude #oil #that #may #be #produced #in #the #country # #

1.8 #Definition #of #Terms

1.  Crude #oil: #liquid #petroleum #as #it #comes #out #of #the #ground.

2.  NNPC#(Nigeria #National #Petroleum #Corporation): #is #the #corporation #through #which #the #federal #government #of #Nigeria #regulates #and #participates #in #the #country’s #petroleum #industry.

3.  OPEC#(Organization #of #Petroleum #Exporting #Counties): an #international #oil #carter #originally #formed #in #1960 #and #including #in #1983.

4.  Refinery: #the #facility #where #the #characteristics #of #petroleum #or #petroleum #product #are #changed.

5.    Exploration: #the #search #for #oil #and #gas. #

6.   Barrel #standard: #unit #of #measurement #in #the #petroleum #industry.

7.    Integrated #company: #a #company #involved #in #virtually #all #aspects #of #the #oil #and #gas #industry.

8.  Refining: #manufacturing #petroleum #products #by #a #series #of #processes #that #separate #crude #oil #into #its #major #component. # # # # # # # # # # #

9.  Forecasting: #is #to #predict #future #values #of #data #based #on #what #happened #before.

10.Stationarity: #if #a #shift #in #time #doesn’t #cause #a #change #in #the #shape #of #the #distribution.

11 Seasonality: #is #a #characteristic #of #a #time #series #in #which #the #data #experiences #regular #and #predictable #changes #that #recur #every #calendar #year.